Poll Shows Merkel Losing Chancellorship If Elections Held Today

Overnight we reported that Germany’s default swaps spiked to the highest level since Brexit as a recent poll showed that Merkel’s lead in the polls had slid to multi-year lows ahead of Germany’s elections later in the year, provoking some concerns that a formerly unthinkable “tail risk” outcome was becoming more likely. However, according to new data unveiled today, Merkel’s headaches are only just starting, because in a brand new poll released this afternoon, the CDU would get 30% of the vote, while the suddenly resurgent SPD would get 31%. This means that the SPD’s new head, Martin Schulz, would enter any coalition talks as the leader of the largest party, hence becoming Chancellor, leading to a stunned reaction by JPMorgan.

In a note released this afternoon by JPM’s Greg Fuzesi, the strategist writes that following the recent resignation of Sigmar Gabriel as leader and chancellor candidate of the SPD, there has been much attention on how his replacement Martin Schulz would perform. Having spent most of his career in the European Parliament, most recently as its president, and being relatively unknown in Germany, this is not easy to predict. In his first major TV interview, he was recently pressed to explain how exactly he differs from his predecessor Gabriel and also from Chancellor Merkel, and what his focus on fairness would mean in practice. This was not entirely straightforward for him.

Nevertheless, opinion polls were beginning to show a bounce last week and this appears to be continuing.

This afternoon, a new opinion poll from INSA showed the SPD gaining further support and overtaking the CDU/CSU for the first time in many years. If elections were held now, the INSA poll suggests that the CDU would get 30% of the vote, while the SPD would get 31%. This means that Schulz would enter any coalition talks as the leader of the largest party, hence becoming Chancellor.

It also means that a SPD-Green-Left coalition would currently win exactly 50% of seats, so that a government without the CDU/CSU could even be possible. In effect, the SPD has gained 10%-pts of support in past two (weekly) INSA polls, taking votes away from all other parties (see second chart below). Interestingly, the AfD has also suffered a significant decline.

Given that Schulz is relatively new to German politics, a novelty factor may be partly responsible for the jump in the polls. It is far too early to say whether this will endure, given that the election campaign has yet to properly begin. It will also be important to see whether other polls replicate the swing. The SPD has gained support in all recent polls, but these are all a week or more old and do not show the latest jump in the INSA poll. That said, there is no reason to dismiss the INSA poll. It is the newest organization and the only one to be done entirely online, but it (arguably) performed only marginally worse than other polls at the last Bundestag election.

A Schulz-led SPD-Green-Left coalition or a Schulz-led grand coalition would certainly be a huge event in German politics. Such possibilities no longer look like tail risks. A SPD-Green-Left coalition would bias German policymaking towards greater fiscal expenditure and investment, and center-left policies. But, even such a coalition would not mark a dramatic break with the past in many areas and would, we expect, continue Germany’s strong support of the EU and single currency.

In short, “Chancellor Schulz” may be just what Brussels, and to a lesser extent President Trump, ordered.